Voluntary Unemployment

Zachary Hayward, Matt Nolan and SedlÃ¡Ä ek, Petr

No 20068, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Using micro-data, we show that 15%-35% of employment-to-unemployment transitions are done voluntarily. In many countries, the voluntarily unemployed are excluded from unemployment insurance. We analyze the implications of such policies. First, we estimate that the voluntarily unemployed do not experience a persistent drop in subsequent earnings, contrasting the earnings scars from involuntary unemployment. Second, we show that a structural model in which heterogeneous workers and firms search for efficient matches can account for these patterns. Excluding voluntarily unemployed from unemployment insurance reduces search incentives (for both workers and firms) and can substantially disrupt allocative efficiency at the aggregate level.

Keywords: Unemployment rate; Separations; Earnings losses upon displacement (search for similar items in EconPapers)
JEL-codes: E24 J64 J65 (search for similar items in EconPapers)
Date: 2025-03
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